The SECURE ACT 2.0 created augmentations to two existing IRA types – the SEP and the SIMPLE.

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As we enter into a new year, it is critical to keep abreast of the changes and updates made to the financial landscape. One of the significant changes that have come to the fore this year is the introduction of two new IRA types. An IRA or an Individual retirement account is a tax-advantaged account that allows individuals to save for retirement. The two new IRA types introduced this year are the spousal IRA and the backdoor Roth IRA.

The spousal IRA is designed to provide a retirement savings option for individuals who are married but do not work outside the home. In most cases, traditional IRA contributions are only allowed for individuals who have earned income. Hence, if one spouse is not working, they cannot contribute to an IRA. The spousal IRA enables non-working spouses to contribute up to $6,000 a year to a traditional IRA or Roth IRA account. To qualify for a spousal IRA, the working spouse must have enough earned income to cover both their contributions and the non-working spouse’s contribution.

The backdoor Roth IRA, on the other hand, is a retirement savings option for individuals who exceed the income limits for contributing to a traditional or Roth IRA. The income limits for contributing to a Roth IRA in 2021 are $140,000 for single filers and $208,000 for married filing jointly. If your income exceeds these limits, you can still contribute to a Roth IRA by using a backdoor Roth IRA strategy. This strategy involves making a non-deductible contribution to a traditional IRA and then converting it to a Roth IRA. The conversion is not subject to income limits, which means you can contribute to a Roth IRA regardless of your income level.

In summary, the two new IRA types introduced this year are the spousal IRA and the backdoor Roth IRA. The spousal IRA enables non-working spouses to save for retirement, while the backdoor Roth IRA provides an option for high-income earners to contribute to a Roth IRA. It is essential to consult with a financial advisor to determine the best retirement savings strategy for your unique circumstances.